Is Locum Tenens Right for You? The Real Math on Pay, Taxes, Malpractice, and Lifestyle

Recruiters love to quote locum tenens rates as a big hourly number, and that number is usually real. What they leave out is everything between the gross rate and the money that lands in your account. Locum work can absolutely out-earn a staff job and give you a schedule you actually control, but only if you go in understanding the tax structure, the malpractice fine print, and the unpaid dead time that never shows up in the pitch. This guide walks through the actual math so you can decide with your eyes open.

How Locum Pay Actually Compares to a W-2 Salary After Taxes

Start by converting everything to the same unit. A staff salary is a package; a locum rate is a raw input.

Take a hospitalist earning $300,000 as a W-2 employee. The real value of that job is closer to $360,000–$390,000 once you add the employer's share of payroll tax, health insurance (often $15,000–$25,000 in employer premium), retirement match, malpractice coverage, CME stipend, PTO, and licensing reimbursement.

Now a locum offer at $200/hour. At 40 hours a week for 46 worked weeks (allowing 6 weeks of unpaid gaps and time off), that is $368,000 gross. Looks like a wash — but it is not, because from that $368,000 you personally pay:

• The full 15.3% self-employment tax on the first ~$168,600 and 2.9% Medicare (plus 0.9% additional Medicare tax) above it — roughly $22,000–$26,000 the employer used to split with you.
• Your own health insurance — $8,000–$25,000 depending on family and marketplace plan.
• Your own retirement with no match.
• Unpaid time: no PTO, no paid holidays, no paid sick days. Every hour you do not work is $0.

Rule of thumb for nurses and physicians alike: a locum rate needs to clear roughly 1.25–1.35x your fully-loaded W-2 hourly equivalent to truly come out ahead. For an RN, if your staff job is worth ~$55/hour all-in, a travel/locum rate under ~$70/hour is often a lateral or losing move once benefits and tax are counted.

The upside is real when the multiplier is there: crisis rates, hard-to-fill rural sites, and high-acuity coverage frequently pay 1.5–2x, and that gap is where locums build wealth fast.

1099 Life: Self-Employment Tax, Deductions, and Retirement

Most locum work is 1099 independent contractor income. That changes your whole tax posture — mostly for the worse on paper, but with levers W-2 employees never get.

Quarterly estimated taxes are mandatory. You must send federal (and usually state) estimates on the 15th of April, June, September, and January. Miss them and you owe underpayment penalties. Set aside 30–40% of every check in a separate account on day one; treat it as untouchable.

Form an entity when volume justifies it. Once you are netting meaningfully into six figures, talk to a CPA about an S-corp election. Paying yourself a reasonable salary and taking the remainder as distributions can shave thousands off self-employment tax annually — but it adds payroll filing and cost, so it is not worth it at low volume.

Legitimate deductions you now control:

• Malpractice premiums you pay yourself
• Licensing, DEA, board certification, and credentialing fees
• CME, conferences, and required travel
• Home office (if you have a dedicated administrative space)
• Health insurance premiums (self-employed health insurance deduction)
• Mileage or travel not reimbursed by the agency
• Accounting and legal fees

Retirement is a hidden advantage. A Solo 401(k) or SEP-IRA lets a high-earning locum shelter far more than a typical employer plan — a Solo 401(k) allows employee deferrals plus employer contributions well into the tens of thousands. Many locums who run the numbers can actually save more pre-tax than they could as staff.

Keep clean records from month one. A dedicated business checking account and a bookkeeping app are non-negotiable.

Malpractice, Tail Coverage, and Licensing Across States

This is where careless locums get burned.

Know your policy type. Agencies usually provide malpractice, but ask which kind:

• Occurrence policies cover any incident that happened during the coverage period, forever — the gold standard.
• Claims-made policies only cover claims filed while the policy is active. When the policy ends, you are exposed unless you buy tail coverage.

Always get in writing: "Is coverage occurrence-based or claims-made, what are the per-claim and aggregate limits, and if claims-made, who pays for tail?" Aim for limits of at least $1M/$3M. If the agency provides tail, confirm it in the contract — do not accept a verbal promise.

Licensing is a timeline problem, not just a cost problem. A new state license can take 60–120 days. The Interstate Medical Licensure Compact (for eligible physicians) and the Nurse Licensure Compact (multistate RN/LPN license) dramatically shorten this — check whether your states participate before you commit to an assignment. Front-load licensing in states you might want to work; agencies will often reimburse fees but rarely reimburse your waiting time.

Vetting Locum Agencies and Reading the Assignment Contract

Agencies vary enormously. The good ones are logistics partners; the bad ones overpromise rates, underdeliver on credentialing, and vanish when a site cancels.

Vet the agency:

1. Ask whether they are NALTO-member (National Association of Locum Tenens Organizations) — it signals a baseline code of ethics.
2. Ask to speak to two current locums working similar assignments.
3. Ask who handles credentialing and how long it typically takes at this specific site.
4. Get the actual pay rate in writing before you fill out a single credentialing form — never start credentialing on a verbal rate.

Read every contract for these clauses:

• Cancellation terms. The single most important line. What happens if the facility cancels your confirmed assignment? Good contracts guarantee pay for a notice window (e.g., 30 days) or a minimum number of shifts. Without this, a site can cancel two weeks out and you have blocked your calendar for nothing.
• Guaranteed hours vs. "up to" hours. "Up to 40 hours" is not a promise of 40 hours.
• Non-compete / no-conversion clauses. Many contracts bar the facility from hiring you directly for 1–2 years, and bar you from working that site through another agency. This limits your future options.
• Travel and housing specifics. Is housing provided or a stipend? Who books and pays for flights? What is reimbursed vs. advanced?
• Overtime, call, and holiday rates. Get the differential in writing.

Sample email to send before signing: "Before I begin credentialing, please confirm in writing: hourly rate and any call/OT differential, guaranteed minimum hours, cancellation policy including pay guarantee, malpractice type and tail responsibility, and exactly what travel and housing are covered."

Lifestyle Realities: Travel, Credentialing Lag, and Gaps Between Gigs

The freedom is real, and so is the friction.

• Credentialing lag means your first paycheck at a new site can be 2–4 months after you say yes. Keep a cash cushion of at least 3 months of expenses.
• Gaps between assignments are unpaid. Even well-run locum careers have dead weeks. Budget for 6–10 unpaid weeks a year and treat any less as a bonus.
• You are always the new person. New EMR, new order sets, new team, new parking lot — every few weeks. Some clinicians find this energizing; others find the constant onboarding exhausting.
• Travel wears on you. Weekly flights, hotel or short-term housing, and being away from family add real cost and fatigue that the hourly rate does not capture.
• Benefits are on you. Health, dental, disability, and especially own-occupation disability insurance — buy your own; it is one of the most important purchases a locum makes.

Who Thrives in Locum Work and Who Should Avoid It

Locums tends to reward you if you:

• Are financially disciplined and comfortable with variable income
• Want to pay down debt fast or test different geographies and practice settings
• Are early-career and building experience, or late-career and winding down on your own terms
• Adapt quickly to new systems and enjoy autonomy over your schedule
• Have a working spouse's benefits or are confident buying your own

Locums tends to punish you if you:

• Need predictable, steady cash flow (young family, large fixed mortgage)
• Dislike administrative overhead — taxes, contracts, and bookkeeping are now your job
• Value deep continuity with patients and colleagues
• Are risk-averse about coverage gaps or malpractice exposure

The Bottom Line

Locum tenens is neither a scam nor a golden ticket — it is a business you run. Do three things before you sign: build the fully-loaded comparison (not gross rate vs. gross salary), get malpractice type, tail responsibility, and the cancellation clause in writing, and stand up your tax and retirement infrastructure — a separate tax account, quarterly estimates, and a Solo 401(k). Get those right and locum work can pay more, teach you more, and give you more control than most staff jobs ever will. Skip them and the "higher pay" quietly evaporates into tax, gaps, and uncovered risk.